John Gibson on Digital Innovation, Collaboration, Financial Transparency & the Pursuit of Energy Independence
SPONSORED BY NUTANIX
Whether he’s talking about optimizing the flow of crude oil from underground reservoirs, sharing more information among domestic competitors, or highlighting the need to compress data due to bandwidth constraints, John Gibson is in the business of finding ever greater efficiencies. An industry veteran with a high tech bent, he spent a decade at Gulf Oil/Chevron, then led oil and gas exploration and production software companies Landmark Graphics and Paradigm Geophysical. Prior to joining Flotek Industries as CEO, he served as president of Halliburton Energy Services and Chairman of Energy Technology at the Tudor, Pickering, Holt & Company investment and merchant bank.
As CEO and Chairman of Flotek, he oversees a global operation that supplies chemistry products and services to large and small oil and gas producers, oilfield service companies, and other industries in the United States and throughout the world. Flotek’s product offerings include prescriptive, reservoir-centric chemistry technologies designed to address every challenge in the lifecycle of the reservoir. Gibson’s varied experience has prepared him to lead a large company in changeable, uncertain times punctuated by global price wars and a pandemic that is changing daily lives and business activity in unpredictable ways.
The Global Price War And The Need For Industry Collaboration
All businesses around the world are facing monumental challenges due to the Covid-19 pandemic. As if the pandemic wasn’t enough to contend with, the oil and gas industry in the United States is also reeling from a price war between Russia and Saudi Arabia that by mid-March 2020 had lowered crude oil prices 24%, making U.S. oil — especially from fracking operations — non-competitively priced.
While capable of improving the flow of crude oil from reservoirs by up to 30%, Flotek’s patented Complex nano-Fluid® (CnF®) technologies are not enough to counter the effects of the global drop in oil prices for Flotek’s customers. The price war has “taken down the share prices of oil and gas companies, which means access to capital as well,” says Gibson. “And the first thing to go during this period is transformation efforts — digital, cultural, operational, or mechanical.”
While individual American companies don’t have the clout to counteract a prolonged price war between major producing countries, Gibson believes that greater collaboration between companies within the same industry is a way to fight back by helping to lower production costs and increasing return on investment. For the oil and gas industry that means sharing data; using machine learning, artificial intelligence, and advanced analytics to actualize more insightful and valuable multivariate analyses to increase the sectors return on capital invested. “We need the tide to rise for everyone in the sector,” said Gibson. “One company doing well will not attract capital back to the sector nor will it achieve the highest multiple for the one outperformer. We need a more profitable industry.”
In Flotek’s sector of the industry, that means gathering and pooling data on dynamic reservoir characteristics and properties in order to run analytics designed to improve both the rate of production and the recovery of a greater percentage of the original oil in place.
“For the chemistry sector, that means everybody sharing more about their rocks, their completions strategy, and completions chemicals used in the stimulation and completion process.” Why? “So everybody can increase their performance,” says Gibson. “With more comprehensive data, a multivariate analysis can help demonstrate the contribution of our chemicals compared to other factors such as length of lateral, volume of sand pumped, number of clusters and stages as well as many other variables.”
Machine learning and multivariate analysis will make a big difference in getting actionable intelligence and insights from this data, Gibson argues. Data and analytical solutions can pinpoint what provides the greatest performance improvement for a well. The goal is to provide Flotek’s customers with an assessment of which variable yields the greatest return.
More Financial Transparency Needed
Gibson relates the need for more data collaboration among oil and gas companies to the need for the industry to transition from a free market to a more integrated market where there is less competition and more cooperation. Driven by the need to lower costs, improve performance, and be more competitive, this shift is vital to the industry’s survival. But it will be a difficult transition, he concedes, due to the historically independent, entrepreneurial, and competitive culture that exists in the North American oil business.
Another area of the business he sees in dire need of disruption and transformation are financial Enterprise Resource Planning (ERP) systems and financial audits.
“There’s a tremendous amount of money spent on auditing both public and private companies. Why not make financial information more transparent and available to the investor community?” he suggests. “We could avoid the huge inefficiency of financial audits, instituted by shareholders as a check and balance on company financials to which they have limited access.” Gibson sees this type of transparency becoming the norm within two decades. “We’ll be able to eliminate people checking people. This fundamentally does not add value to a company. I would rather see focus on how financials can be standardized and delivered transparently via the ERP system investments that every industry has made.”
Managing Remote Workers During A Pandemic
As of St. Patrick’s Day, March 17, 2020, 80% of Flotek staff was working remotely due to the Covid-19 pandemic. With access to videoconferencing tools like Zoom, Microsoft Teams, and GoToMeeting, the staff is mostly using conference calling features for company meetings.
The challenge has been to properly capture and document the minutes and action items from those meetings. “There is still a lot of manual process that has to take place,” notes Gibson. “We’re trying to look at how to document meeting information, define action items, and then track those. All of that needs to be better integrated into meeting software.”
A related technology topic is bandwidth. Due to the high network usage during the pandemic, with billions of people around the world sequestered at home, getting more out of a limited amount of bandwidth will be increasingly important.
The explosion in data has taxed storage, delivery, computation, and visualization. A key area of advance that will be of tremendous value for the foreseeable future is data compression. “With data compression, organizations can gain a huge improvement in computational, network, and storage cost efficiency. This will be especially true if they are able to use the data without having to decompress and recompress. Think of the compression factor scaling your infrastructure in a nonlinear fashion. The value will be enormous,” says Gibson.
Energy Independence And A More Collaborative Future
The recent oil price war has rekindled a looming debate on energy independence within the United States. As Gibson sees it, one side supports the status quo; a free market in oil and gas with dependence on foreign operators like Russia and Saudi Arabia. This model should produce the lowest possible price. The other side, which he advocates, is defined by creating a USA energy strategy that balances the benefit of the free market with the risk mitigation necessary to achieve and sustain energy independence. Gibson feels that dependence on suppliers that do not share our ideals and values—and in some cases can be categorized as enemies of America—seems the riskiest scenario. A mechanism needs to be created to sustain USA energy independence. This requires some variety of subsidy for domestic production or tariffs on imports to allow higher cost reserves to be available to the United States in the event of a global crisis. Saudi Arabia and Russia have proven that unconventional production in the U.S. cannot compete at the price levels which are profitable in many other parts of the world.
Wherever the political shifts leave the oil and gas industry and its markets, it’s clear that technology will play an outsized role in its future, adding efficiencies and reducing costs.
“We haven’t scratched the surface when it comes to analytics,” believes Gibson. “The retail industry has done a better job with it to understand what we’ll buy next. The opportunity exists in our industry to raise the tide for everyone with insights from data. The more we know, the better we can operate.”
Flotek isn’t waiting for other companies to share their data. They’re moving ahead independently by working with reservoir simulation software and analytics companies on multiphase data flows to help producers understand which extraction variables can be modified to deliver the best flow performance.
Meanwhile, operating with ‘shelter in place’ restrictions in some cities and regions, Flotek continues to support customers around the world. Gibson notes how technology is transforming business communications, elections, shopping, and even Sunday worship during this unprecedented time.
“My wife and I went to church on Facebook the other day,” he says. “Protestants are usually pretty quiet during services but during the sermon everybody was posting messages and emojis, expressing their excitement and solidarity. It was an amazing cultural shift.” Gibson was tallying up the efficiency gains: “You take a building used only a couple of hours a week and move the experience online, deliver an equivalent or better experience, cut the heating and cooling costs, reduce the hydrocarbons from travel...”